Understanding the Evolution of Online Clickwrap Agreements

Welcome to Step 1: EXPLORATION of the Future of Contracts Design Derby!

A Legal Perspective

Video 1: Intro to the Challenge

The world of digital contracts is complex and ever evolving. As technology progresses, so too do the ways in which agreements are formed.  Online clickwrap agreements allow a website or app to present terms and conditions to users, who accept by performing a specific act – typically clicking an “I agree” button.

Such mechanisms have proven essential to modern business, which moves rapidly and needs to ensure that contracting with numerous counterparties not become prohibitively expensive, slow, or impossible.

Video 2: Traditional vs Modern Paradigms

How the law has viewed this approach

Historically, courts have upheld these agreements if they were reasonably conspicuous, and the user had a meaningful opportunity to review them. The business community has grown comfortable with certain click to accept approaches under this legal regime. 

Video 3: The Complex Challenges

At least two trends have brought about some of the current uncertainty and undergird the primary tensions of this Future of Contracts Design Derby.

First, these agreements have grown more common and numerous, and therefore implicate a broader swath of consumers’ contractual rights. One area that has experienced significant change and controversy is the modification of online clickwrap agreements. These are the contracts we implicitly or explicitly agree to when using a variety of online services, from social media to cloud storage.

Second, some recent cases—especially around the modification of these agreements–have raised concerns about companies overreaching in the use of these approaches.

What role should meaningful informed consent in contract theory?

Video 4: Trends & Tensions

As mentioned in the video, we have some questions to consider related to implementation of clickwrap agreements:

• What constitutes adequate notice of contract terms?
• How can companies prove users received and understood the notices?

Or, we might ask a range of questions related to amendments of terms of service (TOS):

• What is considered “actual notice” of a TOS change, and how can a company reasonably provide it?
• Does an opt-out mechanism suffice to indicate informed consent or should explicit assent, such as a click-through, be required?
• How can companies prove users received and understood email notifications of TOS amendments?
• What should be the implications for a company failing to prove a user’s receipt of amendment notifications?
• How can companies address the issue of outdated email addresses, spam filters, and users who do not open or read emails?
• Should the process for TOS amendment be different for substantive changes, such as the addition of an arbitration clause?
• What should be the consequences of a TOS amendment being deemed invalid due to lack of informed consent? Should it affect all users or only those who contest it?
• If a data breach occurred before an arbitration clause was added to the TOS, to what extent is the clause applicable?
• How should potential statute of limitations issues be addressed in cases of delayed lawsuits, like Sifuentes suing eight years after the data breach?
• Are companies ethically obliged to ensure users understand amendments to TOS, beyond just providing notice?
• Is the power imbalance between companies and individual users exacerbated by complex TOS amendments?
• How can human-centered design contribute to making TOS amendments more comprehensible and noticeable for users?
• Are there alternative models to the current TOS amendment practices that would better respect users’ rights and autonomy?

These legal issues present a rich and complex problem set our Future of Contracts Design Derby. They offer an opportunity to rethink not only the legal frameworks around clickwrap agreements but also the way legal services and information are delivered to create a more equitable digital landscape.

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Now, let’s look at the following situation to make these ideas concrete.

The Situation

Part A

You are a rising star on the CloudBox legal team. The cloud storage app has gone viral, with over 100 million active users. You arrive at work one morning to an urgent email from the VP of Engineering.

“Our support staff can’t handle user inquiries anymore. Basic questions are backlogging for months. We need to optimize efficiency as we scale.”

You meet with the legal team to brainstorm. “Frivolous lawsuits could also explode as the user base grows,” you warn. “We need to limit legal liability.”

You ultimately propose mandating binding arbitration for disputes. This would redirect cases out of the unpredictable court system. You also draft a revised Terms of Service that users must consent to or close their accounts.

“Email notification of the new Terms is legally adequate for consent,” you advise. “We’ll put the option to opt out, but let’s be realistic – with 100 million users, less than 10% will actually read the updates or new legal policies.”

The legal team approves your proposed changes. Although some feel ambivalent about relying on folks not reading updated Terms, nobody can think of more practical alternatives. The changes will allow CloudBox to scale efficiently while mitigating company risk.

Part B

You excitedly create a CloudBox account to organize your photos and files online. Eager to dive in, you rush through the account setup screens, accepting the lengthy Terms of Service without reading details.

Over the next couple years, CloudBox becomes essential file storage integrated into your daily life. One morning you receive an email from them about updated Terms. You skim for anything worrying but the legal jargon is dense and unfamiliar. You set it aside, assuming you would have heard news if the changes were important.

Months later disaster strikes – every single photo and file disappears from your CloudBox account! Frantic, you contact customer support and learn a technical glitch permanently corrupted your data with no backup.

Furious, you threaten legal action. Only then do you discover that in “agreeing” to updated Terms you had forfeited rights to sue and must pursue mandatory binding arbitration instead. You feel that CloudBox modified the rules midstream without your meaningful, informed consent.

The Law

Now imagine that this recent hypothetical case – Consumer v. CloudBox – shapes the law in this area.

• The Plaintiff/Consumer entered an Initial Agreement with CloudBox in 2019 by clicking a box stating, “I agree to the CloudBox Terms of Service,” and that current TOS was hyperlinked next to that checkbox. 

• Plaintiff/Consumer did not contest that he agreed to the 2019 TOS at the time he created an CloudBox account. Importantly, however, the 2019 TOS did not include a mandatory arbitration provision.

• Defendant/CloudBox argued that it contracted for the right to change the terms at will because the 2019 TOS contained a provision stating that Defendant/CloudBox “may revise these Terms from time to time” and that continuing to use the service thus constitutes agreement to any revised terms. Plaintiff/Consumer continued to use the service.

• In a 2022 modification to its TOS, CloudBox added an arbitration provision. CloudBox sent users—including Plaintiff/Consumer—an email with a hyperlink leading to the new terms of service and Defendant’s/CloudBox blog. The email also included multiple bullet points describing changes being made to the TOS, including:

“We’re adding an arbitration section to our updated Terms of Service. Arbitration is a quick and efficient way to resolve disputes, and it provides an alternative to things like state or federal courts where the process could take months or even years. If you don’t want to agree to arbitration, you can easily opt-out via an online form, within 30-days of these Terms becoming effective. This form, and other details, are available on our blog.”

• The 2022 TOS, which were in effect when Plaintiff/Consumer filed his Complaint, contained the following arbitration provision:

“We Both Agree to Arbitrate. You and CloudBox agree to resolve any claims relating to these Terms or the Services through final and binding arbitration by a single arbitrator, except as set forth under Exceptions to Agreement to Arbitrate below. This includes disputes arising out of or relating to interpretation or application of this “Mandatory Arbitration Provisions” section, including its enforceability, revocability, or validity.”

• The 2022 TOS included a provision for opting out of arbitration:

“Opt-out of Agreement to Arbitration. You can decline this agreement to arbitrate by clicking here and submitting the opt-out form within 30 days of first registering your account. However, if you agreed to a previous version of these Terms that allowed you to opt out of arbitration, your previous choice to opt out or not opt out remains binding.”

• Plaintiff/Consumer “never read, clicked on, or accepted any updated terms and conditions, including any emails sent concerning any changes to the TOS and the arbitration agreement.”

• When Plaintiff/Consumer argued that he should not be held to the arbitration clause, the Court ruled for Plaintiff/Consumer, stating the rule that amendments to a click-wrap agreement like InterWeb’s TOS are invalid unless the user/consumer had to demonstrate assent through some act beyond mere continued use of service.

*This hypothetical case is based on the real-life case of Sifuentes v. Dropbox. 

Your Thoughts

Now share your thoughts on the scenarios and legal case above!

• Names (first and last) of all team members (who participated in this exercise; it’s ok to submit individually, too!)
• Please share the email addresses of all team members so that we can send them a confirmation of this submission.
• How would you describe the tensions and problems at work in this scenario?
• How would you describe the needs of CloudBox?
• How would you describe the needs of the consumer?
• What are your own thoughts? With whom do you sympathize most naturally? 
• What is at least one “How might we…” statement that you or your group might propose? 
• Are there any questions you have at this point?

Note: To find meaningful solutions through design processes, we often frame “How Might We…” statements—brief but powerful questions that help us see the opportunities to create new solutions and do things better. (e.g. “How might we…help consumers to better understand the terms of contracts?”)

“How Might We” (HMW, for short): We use these three words because they help frame a problem in an open-ended, optimistic, and collaborative way. “How” assumes there are solutions out there. “Might” says some of the ideas may work, others won’t—either way, it’s OK. And “We” says we’re going to solve the problem together by building on each other’s ideas. – Read more at IDEO